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HTC posts weak Q4 results, warns sales could fall 36% in Q1

As expected, HTC reported a 26 percent drop in fourth-quarter profit, but the Taiwanese smartphone maker also forecast a tough first quarter as it undergoes a "product transition" and warned that its first-quarter revenue could fall as much as 36 percent from the fourth quarter.

HTC reported net profit in the quarter of around $369 million, as was expected after the company released unaudited results for the fourth quarter in January. The company's 26 percent drop in quarterly profit was its first profit drop in two years. Revenue for the quarter clocked in at $3.42 billion, down 2.5 percent from the year-ago period. For the first time, HTC did not provide shipment volumes for the quarter, nor did it provide a shipment forecast.

However, it was HTC's weaker forecast for the first quarter that has analysts and investors worried. The company said that it expects revenue to be between $2.2 billion and $2.36 billion for the quarter, weaker than analysts' expectations of $2.86 billion, according to Bloomberg.

"Our weakness in first-quarter guidance also comes from facing competition in the U.S. from iPhone and Samsung," HTC CFO Winston Yung said on a conference call. "LTE handsets also didn't meet our expectations." HTC said it expects first-quarter gross margin and operating margin to come in at around 25 percent and 7.5 percent, respectively, down from 27.12 percent and 12.71 percent in the fourth quarter. However, Yung said margins will return to levels the company experienced in the first three quarters of 2012 once the company's product transition is over, back to levels of 28 to 29 percent for gross margin and 14.86-15.81 percent for operating margin.

HTC has been under pressure from other companies in the increasingly crowded market for devices running Google's (NASDAQ:GOOG) Android platform and Microsoft's (NASDAQ:MSFT) Windows Phone. The company is expected to debut new models later this month at the Mobile World Congress in Barcelona, Spain, including an Android smartphone with a quad-core processor dubbed the "Ville."

"In 2011 we saw growth in the global strength of our brand, as well as earnings and revenue growth," HTC CEO Peter Chou said in a statement. "While short term performance may not meet the results as expected, we have gained further experience and advancement in the areas of brand management and product innovation. These fundamental strengths and the groundwork we have laid will take us into 2012 with a renewed focus and determination."

Looking ahead to the rest of 2012, the company said in a statement that it will focus on growing its brand value, continuing to create competitive advantages through innovation, enhancing the efficiency of its marketing campaigns and driving down operating costs. HTC said it will focus on a globalized marketing campaign "to optimize its go-to-market strategy with operators, retail distributors, and end-users, and improve the efficiency of its marketing spend."

"It can be turned around," IDC analyst Melissa Chau told Reuters before HTC gave its first-quarter revenue guidance. "But the problem remains the same: How are they going to differentiate?"

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